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What is a Interest Only Mortgage?

With an interest only mortgage, the borrower takes out a 30-year mortgage, electing to pay interest only for a set period of time, such as 3, 5, 7 or 10 years. After the end of the interest only period, the monthly payments readjust to include the principal, and the loan is re-amortized for the remaining years which can cause the payment to rise substantially. At this point, most people either refinance, start paying off the principal, or sell their property. Studies have shown that homes are sold on average every 5 to 7 years. So, if you plan to sell within that period, why pay principal when the first 10 years of a mortgage payment are mostly towards interest.

An Interest Only Mortgage may be a good fit if:

Income is mostly from Commissions or Bonuses;
You expect to earn a lot more in a few years and want to maximize your buying power now;
You will Invest the Savings by not paying Principal on your Mortgage and put it into Higher Interest Returning Investments;
You Invest in Real Estate and want to keep your payment low and keep the property for a short time;
This flexible mortgage gives people the tools necessary to manage their debts as carefully as they manage their assets. Most Americans assume it's always best to pay down their mortgages as quickly as they can, but in a lot of cases that's not always true.

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